Is Real Estate Still the Best Asset Class?

Is Real Estate Still the Best Asset Class?

Dave MeyerPro Member
Head of Real Estate Investing at BiggerPockets · Seattle, WA · Member since 2015 · 355 posts · 829 votes

Real estate is harder than it's been in more than a decade -- we all know this. High prices + high mortgage rates + low inventory is making this a challenge. So my question is  -- in an era where you can get a 5% CoCR from bonds, money market accounts, or a high-yield savings account is RE still the best place to put your money? 

I'll give you my opinion below, but curious to hear what you all think. 

Here's my take, and you probably won't find this shocking, but RE is still the best asset class. I am what I would call a 'total return investor' -- which is that I don't care as much about cashflow, or tax benefits, or appreciation in particular -- I'm in it for the whole package. And when you look at it that way, RE is still the clear winner. 

I just put a deal under contract that was on market. It will generate about 4% CoCR, and 2% in amortization. Even with a very modest expectation of 2% annual appreciation, I will earn about 6% there (thanks leverage!), and tax benefits will give me another 1.5%. If I add that all up, I am getting somewhere between a 12-15% annualized return, for an on-market deal that just needs some cosmetic upgrades. 

Compare that to bonds (5%), or the average return in the stock market (8-10% depending on who you ask) and REI is a no-brainer to me. Am I missing something here?!?

Sure you could say that RE is at all-time highs and is going to come down. It's possible, but a big correction in residential RE is not likely, and over a long hold period, RE will appreciate. Plus, I am generating modest cashflow now + amortization and tax benefits.  Also, the same can be said about the stock market. It's also at all-time highs, and its historical far more volatile than RE. 

Now you may be thinking that owning RE is more work than the stock market, and that is undoubtedly true. But the difference between 10% and 12% over a long hold period is enormous. For an investment of $100,000, over a 10 year hold the difference in total return between a 10% annualized rate, and 12% is $51,000. For some that might be worth the work of REI, for others not so much. BUT -- if your hold period is 30 years the difference grows to $1.25M!! Gotta love compounding.


 So, back to my original question. Is RE still the best asset class? For me -- a 36 year old who plans to keep working for the next several decades -- there's no doubt in my mind. I will gladly take on the extra work of owning RE, given that, even with more difficult conditions, RE still has a very high probability of delivering me outsized returns over my investing career. 

What do you all think? 

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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
Quote from @Russell Brazil:

In investing, there is no such thing as the best, or the worst. There is no such thing as good or bad.

Investing is deploying capital to get a return based on one's risk tolerance. There is merely varying degrees of risk. There is high risk, moderate risk, low risk. Risk is neither good or bad.

Real estate on average tends towards the low end of the spectrum, but of course real estate runs the gamut of risk.


 I could not have said it better myself. It may be best for person A but not for person B. I have been in real estate 25 years, my wife in finance for 25 years. Real Estate is the best for me, because I like to think I know what I am doing and can use my experience and knowledge along with being active in the space to enhance returns. My wife, she cannot - but she can do it with investing in the markets and other areas that there is no way I could do that. 

I met a guy who does selective breeding of snakes. He sells them for tens of thousands a pop and generates revenue of over $1M a year and has no overhead except his electric bill in his basement for the lighting, a part time employee and of course the food. He has someone take care of the snakes which is like an hour a day. He does whatever he wants. I was sitting next to him along with a group of others in real estate and were like - WTF are we doing dealing with people/tenants/borrowers and this guy is traveling the world while he breeds snakes and generates 7 figures with no debt...

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  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y
    Quote from @K S.:
    Quote from @Paul Azad:

    OP, for right now, who knows?

    argument for stocks, corporate earnings rose 11.39% this quarter year/year, so puts forward PE on sp500 at 19.9, not far above historical avg of 18.2 PE, and the earnings of companies are growing much faster(driving PE lower) than the historical price appreciation of real estate, which per every long term study has it pegged at about the inflation rate (Dutch economist Piet Eichholtz built a price index of houses on the Herengracht {most expensive canal, homes} in Amsterdam, with a constant quality from 1628 until 1973, which has been extended to present, 400yrs). Also SP500 up 8X since at 666 on 3/6/09 until now, in just 15 years, with no leverage. Obviously one can use leverage in Equities as well, through 2X, 3X, 4X ETFs on sp500 or QQQs, also via margin but at only 0.5X, but can get easy 100X on call options and potentially infinite leverage on cheap short dated expiry options, So investing today one could get great returns in stock market?

    argument for Real Estate, with 5 to 1 or even greater leverage, can be great investment clearly. For me the tax benefits are huge as well. My syndicated CRE investments have done 23% avg annual returns since mid-90s, many rolled over and over by 1031, giving effective tax yield near 37%/year if I were to ever sell, which I hope I never shall, just pass to kids with basis step up on first 13.6 Meg. However, Real Estate is highly sensitive to borrowing costs for all that lovely leverage. With the 10yr rising from 0.31% in 3/2020 to 4.55% now, and if one believes in the data from Soviet mathematician/economist Nicholai Kondratiev, the interest rates along with GDP, follow long 50-60 year cycles of Leverage Up/De-Leverage, or expansion-contractions. We just got off a 40 year Leverage UP from 1981 until 2020, which followed a De-Leverage from 1942-1981, this cycle maps out pretty perfectly going back to late 1770s in US, meaning we may be in year 4 of 30-40 years of rates rising and Cap Rates rising, and pressure on real estate appreciation?

    So OP, Who Knows? but just keep investing in something because Inflation is Certain :(

    Good point on ETFs. The QQQ performed 20-50% every year for the last 5 years. Incredible returns via leverage. And dividens would not drop as fast in a crash. A diversified stock portfolio or simply the S&P500 has obviously done better in a scenario where both asset classes where purchased in the crash of 2007. While one is averaging down, the other is filing for bankrupcy and divorce. Yet some people think real estate can't LOSE in a recession and stocks can't go up (like TSLA did). You can hope and dream but history doesn't lie. Not that history repeats itself but it often rhymes.

    If I had to only pick one, I would advise people to invest in stocks. It has created way more winners and retirees than the casual home buyers.

    You're not wrong, but I'd argue 2007 to 2022 will be different than 2022 to 2037. I know lots fear a crash will be imminent, I'm in the camp of a correction and in some markets a harsh one. Not where it goes from $350k to $150k like we saw in GRE but where we see $350k go to $265k. I can absolutely see that. I do believe most of the damage was done in Q4 '22, but we'll see.

    With that said, 2022 fwd is showing land and overall REI is going to be scarcity play. Not necessarily a play versus other forms of alternative or mainstream asset investing and for that reason I got into REI at the tip of 2023. I say that in the face of folks who ridicule me that climate will force changes to living standards, job development will be global and not as local or national, the natural course of the currency being devalued, and housing developments will be cyclical per usual. I don't think we're entering a 30-40 year deleveraging cycle like the yesteryears may show; today's world responds a ton faster, and you'll see movements never linearly only abruptly. We're facing an artificial contraction that can be remedied almost overnight(under 6mos). Fundamentally, the money supply had irreparable damage and that would tell you scarcity plays will remain the most potent. I won't go down the bitcoin rabbit hole, but land should speak for itself.

    Most of my equities were bought in 2008-2011 and again 2017-2020. I did some, albeit a ton less, in 2012-2016 but 90% of the allocation were in those two periods. Between 2012-2016 a lot of my main investment criteria was direct investments on wells, ags, minerals, etc. I'm betting owning debt will be the best investment from now till 2027, and primo land in 2027-2037 ++ going fwd whether that's utility based or resource based, if not both.  I think both of those over public equities, and even ahead of private equity. Granted I run my capital much like a family office, so we have the power to run things deeper. My conviction hasn't changed since Oct '22, and I think a lot of other folks will wake up and smell the coffee but need to be served it first.

    So with that said, i think real estate will yield higher in the next 15 years if you buy quality places. I don't consider your condo in SD quality, I consider a SFH in San Diego quality if it's in a good neighborhood. We can get deeper on this front, but this will be the real decisive point on what's truly better. If you're a slum investor, or an investor without control(HOA sanctions), or a spread investor you'll get run over. 
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    2y
    Quote from @V.G Jason:
    Quote from @K S.:
    Quote from @Paul Azad:

    OP, for right now, who knows?

    argument for stocks, corporate earnings rose 11.39% this quarter year/year, so puts forward PE on sp500 at 19.9, not far above historical avg of 18.2 PE, and the earnings of companies are growing much faster(driving PE lower) than the historical price appreciation of real estate, which per every long term study has it pegged at about the inflation rate (Dutch economist Piet Eichholtz built a price index of houses on the Herengracht {most expensive canal, homes} in Amsterdam, with a constant quality from 1628 until 1973, which has been extended to present, 400yrs). Also SP500 up 8X since at 666 on 3/6/09 until now, in just 15 years, with no leverage. Obviously one can use leverage in Equities as well, through 2X, 3X, 4X ETFs on sp500 or QQQs, also via margin but at only 0.5X, but can get easy 100X on call options and potentially infinite leverage on cheap short dated expiry options, So investing today one could get great returns in stock market?

    argument for Real Estate, with 5 to 1 or even greater leverage, can be great investment clearly. For me the tax benefits are huge as well. My syndicated CRE investments have done 23% avg annual returns since mid-90s, many rolled over and over by 1031, giving effective tax yield near 37%/year if I were to ever sell, which I hope I never shall, just pass to kids with basis step up on first 13.6 Meg. However, Real Estate is highly sensitive to borrowing costs for all that lovely leverage. With the 10yr rising from 0.31% in 3/2020 to 4.55% now, and if one believes in the data from Soviet mathematician/economist Nicholai Kondratiev, the interest rates along with GDP, follow long 50-60 year cycles of Leverage Up/De-Leverage, or expansion-contractions. We just got off a 40 year Leverage UP from 1981 until 2020, which followed a De-Leverage from 1942-1981, this cycle maps out pretty perfectly going back to late 1770s in US, meaning we may be in year 4 of 30-40 years of rates rising and Cap Rates rising, and pressure on real estate appreciation?

    So OP, Who Knows? but just keep investing in something because Inflation is Certain :(

    Good point on ETFs. The QQQ performed 20-50% every year for the last 5 years. Incredible returns via leverage. And dividens would not drop as fast in a crash. A diversified stock portfolio or simply the S&P500 has obviously done better in a scenario where both asset classes where purchased in the crash of 2007. While one is averaging down, the other is filing for bankrupcy and divorce. Yet some people think real estate can't LOSE in a recession and stocks can't go up (like TSLA did). You can hope and dream but history doesn't lie. Not that history repeats itself but it often rhymes.

    If I had to only pick one, I would advise people to invest in stocks. It has created way more winners and retirees than the casual home buyers.

    You're not wrong, but I'd argue 2007 to 2022 will be different than 2022 to 2037. I know lots fear a crash will be imminent, I'm in the camp of a correction and in some markets a harsh one. Not where it goes from $350k to $150k like we saw in GRE but where we see $350k go to $265k. I can absolutely see that. I do believe most of the damage was done in Q4 '22, but we'll see.

    With that said, 2022 fwd is showing land and overall REI is going to be scarcity play. Not necessarily a play versus other forms of alternative or mainstream asset investing and for that reason I got into REI at the tip of 2023. I say that in the face of folks who ridicule me that climate will force changes to living standards, job development will be global and not as local or national, the natural course of the currency being devalued, and housing developments will be cyclical per usual. I don't think we're entering a 30-40 year deleveraging cycle like the yesteryears may show; today's world responds a ton faster, and you'll see movements never linearly only abruptly. We're facing an artificial contraction that can be remedied almost overnight(under 6mos). Fundamentally, the money supply had irreparable damage and that would tell you scarcity plays will remain the most potent. I won't go down the bitcoin rabbit hole, but land should speak for itself.

    Most of my equities were bought in 2008-2011 and again 2017-2020. I did some, albeit a ton less, in 2012-2016 but 90% of the allocation were in those two periods. Between 2012-2016 a lot of my main investment criteria was direct investments on wells, ags, minerals, etc. I'm betting owning debt will be the best investment from now till 2027, and primo land in 2027-2037 ++ going fwd whether that's utility based or resource based, if not both.  I think both of those over public equities, and even ahead of private equity. Granted I run my capital much like a family office, so we have the power to run things deeper. My conviction hasn't changed since Oct '22, and I think a lot of other folks will wake up and smell the coffee but need to be served it first.

    So with that said, i think real estate will yield higher in the next 15 years if you buy quality places. I don't consider your condo in SD quality, I consider a SFH in San Diego quality if it's in a good neighborhood. We can get deeper on this front, but this will be the real decisive point on what's truly better. If you're a slum investor, or an investor without control(HOA sanctions), or a spread investor you'll get run over. 

    @V.G Jason Read a lot of your stuff. You Obviously had a lot of money from somewhere to invest. Not sure your age, etc. but you might could be my rich uncle and give Joe S some pointers and if we’re similar to the same age I guess you could give first cousin Joe S some good ideas. :-) 

  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y
    Quote from @Joe S.:
    Quote from @V.G Jason:
    Quote from @K S.:
    Quote from @Paul Azad:

    OP, for right now, who knows?

    argument for stocks, corporate earnings rose 11.39% this quarter year/year, so puts forward PE on sp500 at 19.9, not far above historical avg of 18.2 PE, and the earnings of companies are growing much faster(driving PE lower) than the historical price appreciation of real estate, which per every long term study has it pegged at about the inflation rate (Dutch economist Piet Eichholtz built a price index of houses on the Herengracht {most expensive canal, homes} in Amsterdam, with a constant quality from 1628 until 1973, which has been extended to present, 400yrs). Also SP500 up 8X since at 666 on 3/6/09 until now, in just 15 years, with no leverage. Obviously one can use leverage in Equities as well, through 2X, 3X, 4X ETFs on sp500 or QQQs, also via margin but at only 0.5X, but can get easy 100X on call options and potentially infinite leverage on cheap short dated expiry options, So investing today one could get great returns in stock market?

    argument for Real Estate, with 5 to 1 or even greater leverage, can be great investment clearly. For me the tax benefits are huge as well. My syndicated CRE investments have done 23% avg annual returns since mid-90s, many rolled over and over by 1031, giving effective tax yield near 37%/year if I were to ever sell, which I hope I never shall, just pass to kids with basis step up on first 13.6 Meg. However, Real Estate is highly sensitive to borrowing costs for all that lovely leverage. With the 10yr rising from 0.31% in 3/2020 to 4.55% now, and if one believes in the data from Soviet mathematician/economist Nicholai Kondratiev, the interest rates along with GDP, follow long 50-60 year cycles of Leverage Up/De-Leverage, or expansion-contractions. We just got off a 40 year Leverage UP from 1981 until 2020, which followed a De-Leverage from 1942-1981, this cycle maps out pretty perfectly going back to late 1770s in US, meaning we may be in year 4 of 30-40 years of rates rising and Cap Rates rising, and pressure on real estate appreciation?

    So OP, Who Knows? but just keep investing in something because Inflation is Certain :(

    Good point on ETFs. The QQQ performed 20-50% every year for the last 5 years. Incredible returns via leverage. And dividens would not drop as fast in a crash. A diversified stock portfolio or simply the S&P500 has obviously done better in a scenario where both asset classes where purchased in the crash of 2007. While one is averaging down, the other is filing for bankrupcy and divorce. Yet some people think real estate can't LOSE in a recession and stocks can't go up (like TSLA did). You can hope and dream but history doesn't lie. Not that history repeats itself but it often rhymes.

    If I had to only pick one, I would advise people to invest in stocks. It has created way more winners and retirees than the casual home buyers.

    You're not wrong, but I'd argue 2007 to 2022 will be different than 2022 to 2037. I know lots fear a crash will be imminent, I'm in the camp of a correction and in some markets a harsh one. Not where it goes from $350k to $150k like we saw in GRE but where we see $350k go to $265k. I can absolutely see that. I do believe most of the damage was done in Q4 '22, but we'll see.

    With that said, 2022 fwd is showing land and overall REI is going to be scarcity play. Not necessarily a play versus other forms of alternative or mainstream asset investing and for that reason I got into REI at the tip of 2023. I say that in the face of folks who ridicule me that climate will force changes to living standards, job development will be global and not as local or national, the natural course of the currency being devalued, and housing developments will be cyclical per usual. I don't think we're entering a 30-40 year deleveraging cycle like the yesteryears may show; today's world responds a ton faster, and you'll see movements never linearly only abruptly. We're facing an artificial contraction that can be remedied almost overnight(under 6mos). Fundamentally, the money supply had irreparable damage and that would tell you scarcity plays will remain the most potent. I won't go down the bitcoin rabbit hole, but land should speak for itself.

    Most of my equities were bought in 2008-2011 and again 2017-2020. I did some, albeit a ton less, in 2012-2016 but 90% of the allocation were in those two periods. Between 2012-2016 a lot of my main investment criteria was direct investments on wells, ags, minerals, etc. I'm betting owning debt will be the best investment from now till 2027, and primo land in 2027-2037 ++ going fwd whether that's utility based or resource based, if not both.  I think both of those over public equities, and even ahead of private equity. Granted I run my capital much like a family office, so we have the power to run things deeper. My conviction hasn't changed since Oct '22, and I think a lot of other folks will wake up and smell the coffee but need to be served it first.

    So with that said, i think real estate will yield higher in the next 15 years if you buy quality places. I don't consider your condo in SD quality, I consider a SFH in San Diego quality if it's in a good neighborhood. We can get deeper on this front, but this will be the real decisive point on what's truly better. If you're a slum investor, or an investor without control(HOA sanctions), or a spread investor you'll get run over. 

    @V.G Jason Read a lot of your stuff. You Obviously had a lot of money from somewhere to invest. Not sure your age, etc. but you might could be my rich uncle and give Joe S some pointers and if we’re similar to the same age I guess you could give first cousin Joe S some good ideas. :-) 

    All of my money came via W2 in two separate three-year periods. My advice to folks that did what I did differs to folks that are in their W2 making $75,000/year thinking REI will be financial freedom.

    I try to work at the most pragmatic level on here, but come off dogmatic. Lots of folks are happily blinded to the idea of REI being best, when in reality it's just a tool to get to where they want. If it's a genuine passion beyond an avenue of income stream, that's great, but that's a different goal and movement. 

  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Andrew Lax:

    Many on here are assuming RE will continue to appreciate at these inflated rates  ...   Unless salaries catch up and expenses get under control (RET/Insurance) I dont see that happening ... 

    I think a lot of you are younger and dont remember long periods of little to no appreciation.  I feel we are about to enter into that phase.... 

    That said, there will always be deals and hope you guys find them - I am about to exit from the RE game :-) 


     I used to think like this.
    And I used to think the market would react the same.

    It's not. You may see the market that keeps going up income and salary has no relevance to the pricing , and you would see a market where everything depends on local income.

    Usually, when we face surprise that price does not correlate with income is becoz.... our methodology to count income is wrong all this time.

    Remember, home price is :
    1. determined by auction bid
    2. You could have a zip code with 1000 household/house ; highest price PSF for that home lets say $1K/sqft ; $1,000,000 
     
    but 89% in that neighborhood works for USPS. So how come the price went from 100k to 1000k in 35 years.
    Simple because 11% of the supply keeps changing hand in auction style where the bid going higher and higher. The less number of house to be sold, the faster the velocity of the price.

    And those who purchased those homes in 1986 for $75k, does not need to sell and they can not sell too. Hence price going up without significant relevancy to the income level.

  • Mike ReynoldsPro Member
    construction · Nacogdoches, TX · Member since 2011 · 2k+ posts · 1k+ votes
    2y

    Some in here are assuming investors are buying property at retail. If you buy a 200k property for 100k and spend 40k to get it to retail, you've made 60k in a few months. Certainty doable on the stock market but not likely as there are many more factors involved. Your appreciation on your now 200k house is better because you only have 140k invested in it. 

    I was told you make your money when you buy it. When did this change?

  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y
    Quote from @Carlos Ptriawan:
    Quote from @Andrew Lax:

    Many on here are assuming RE will continue to appreciate at these inflated rates  ...   Unless salaries catch up and expenses get under control (RET/Insurance) I dont see that happening ... 

    I think a lot of you are younger and dont remember long periods of little to no appreciation.  I feel we are about to enter into that phase.... 

    That said, there will always be deals and hope you guys find them - I am about to exit from the RE game :-) 


     I used to think like this.
    And I used to think the market would react the same.

    It's not. You may see the market that keeps going up income and salary has no relevance to the pricing , and you would see a market where everything depends on local income.

    Usually, when we face surprise that price does not correlate with income is becoz.... our methodology to count income is wrong all this time.

    Remember, home price is :
    1. determined by auction bid
    2. You could have a zip code with 1000 household/house ; highest price PSF for that home lets say $1K/sqft ; $1,000,000 
     
    but 89% in that neighborhood works for USPS. So how come the price went from 100k to 1000k in 35 years.
    Simple because 11% of the supply keeps changing hand in auction style where the bid going higher and higher. The less number of house to be sold, the faster the velocity of the price.

    And those who purchased those homes in 1986 for $75k, does not need to sell and they can not sell too. Hence price going up without significant relevancy to the income level.

    That's the chokehold on this. And why it's a scarcity game.

    I get the flat appreciation view; I think that's right for the next 1-4 years but past that it's going to be a scarcity game.
  • Member since 2021 · 401 posts · 254 votes
    2y
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @Andrew Lax:

    Many on here are assuming RE will continue to appreciate at these inflated rates  ...   Unless salaries catch up and expenses get under control (RET/Insurance) I dont see that happening ... 

    I think a lot of you are younger and dont remember long periods of little to no appreciation.  I feel we are about to enter into that phase.... 

    That said, there will always be deals and hope you guys find them - I am about to exit from the RE game :-) 


     I used to think like this.
    And I used to think the market would react the same.

    It's not. You may see the market that keeps going up income and salary has no relevance to the pricing , and you would see a market where everything depends on local income.

    Usually, when we face surprise that price does not correlate with income is becoz.... our methodology to count income is wrong all this time.

    Remember, home price is :
    1. determined by auction bid
    2. You could have a zip code with 1000 household/house ; highest price PSF for that home lets say $1K/sqft ; $1,000,000 
     
    but 89% in that neighborhood works for USPS. So how come the price went from 100k to 1000k in 35 years.
    Simple because 11% of the supply keeps changing hand in auction style where the bid going higher and higher. The less number of house to be sold, the faster the velocity of the price.

    And those who purchased those homes in 1986 for $75k, does not need to sell and they can not sell too. Hence price going up without significant relevancy to the income level.

    That's the chokehold on this. And why it's a scarcity game.

    I get the flat appreciation view; I think that's right for the next 1-4 years but past that it's going to be a scarcity game.

    Is that because new home builds and laxed ADU laws can't keep up with 10s of millions of unchecked immigrants?At some point, you think there would be a boom in housing starts due to incentives for builders that will reverse scarcity. Plus due to the DTI, the middle class can't push prices up anymore and there's not enough rich people to keep bidding up the current supply rate indefinately. I'd imagine polititions making new regulations and incentives for housing starts putting a wrench in the next 10-15 years being as good or better than the last theory. But with completely open borders, I could be wrong.

  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    2y

    @Mike Reynolds

    I think you're right and that's what I've tried to chime in with a few times - if you compare passive index investing vs. passive retail investing, indexes win.  But that's not what you're talking about.

    @K S.

     I think the housing shortage is due to the 2008 crash, land being expensive in desirable areas, and interest rates being high.  Population growth in the US is actually slowing way down.  And people with low interest rates are just holding on to what they've got.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y
    Quote from @Nicholas L.:

    @Mike Reynolds

    I think you're right and that's what I've tried to chime in with a few times - if you compare passive index investing vs. passive retail investing, indexes win.  But that's not what you're talking about.

    @K S.

     I think the housing shortage is due to the 2008 crash, land being expensive in desirable areas, and interest rates being high.  Population growth in the US is actually slowing way down.  And people with low interest rates are just holding on to what they've got.


    A major issue for housing is Entitlement costs and time lines.. especially in some markets were these things can take years to get through the system.. and in some areas decades.
  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @K S.:
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @Andrew Lax:

    Many on here are assuming RE will continue to appreciate at these inflated rates  ...   Unless salaries catch up and expenses get under control (RET/Insurance) I dont see that happening ... 

    I think a lot of you are younger and dont remember long periods of little to no appreciation.  I feel we are about to enter into that phase.... 

    That said, there will always be deals and hope you guys find them - I am about to exit from the RE game :-) 


     I used to think like this.
    And I used to think the market would react the same.

    It's not. You may see the market that keeps going up income and salary has no relevance to the pricing , and you would see a market where everything depends on local income.

    Usually, when we face surprise that price does not correlate with income is becoz.... our methodology to count income is wrong all this time.

    Remember, home price is :
    1. determined by auction bid
    2. You could have a zip code with 1000 household/house ; highest price PSF for that home lets say $1K/sqft ; $1,000,000 
     
    but 89% in that neighborhood works for USPS. So how come the price went from 100k to 1000k in 35 years.
    Simple because 11% of the supply keeps changing hand in auction style where the bid going higher and higher. The less number of house to be sold, the faster the velocity of the price.

    And those who purchased those homes in 1986 for $75k, does not need to sell and they can not sell too. Hence price going up without significant relevancy to the income level.

    That's the chokehold on this. And why it's a scarcity game.

    I get the flat appreciation view; I think that's right for the next 1-4 years but past that it's going to be a scarcity game.

    Is that because new home builds and laxed ADU laws can't keep up with 10s of millions of unchecked immigrants?At some point, you think there would be a boom in housing starts due to incentives for builders that will reverse scarcity. Plus due to the DTI, the middle class can't push prices up anymore and there's not enough rich people to keep bidding up the current supply rate indefinately. I'd imagine polititions making new regulations and incentives for housing starts putting a wrench in the next 10-15 years being as good or better than the last theory. But with completely open borders, I could be wrong.


    Don't forget income is actually can rise faster than the rent. And vice versa.

    Currently, the sample of the metro where income grows faster than rent are San Jose and  Dallas.
    Sample of a metro where rent growth is faster than income growth : Miami, FL. 

    If income grows faster than rent then the home appreciation can still accelarate rapidly especially when city inventory is reducing.

    ...Also the very basic component of home appreciation is money being circulated and not primarily the income in that area. If it's income only then the average price in San Jose shall be equal to Dallas but it's not. 

  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @Andrew Lax:

    Many on here are assuming RE will continue to appreciate at these inflated rates  ...   Unless salaries catch up and expenses get under control (RET/Insurance) I dont see that happening ... 

    I think a lot of you are younger and dont remember long periods of little to no appreciation.  I feel we are about to enter into that phase.... 

    That said, there will always be deals and hope you guys find them - I am about to exit from the RE game :-) 


     I used to think like this.
    And I used to think the market would react the same.

    It's not. You may see the market that keeps going up income and salary has no relevance to the pricing , and you would see a market where everything depends on local income.

    Usually, when we face surprise that price does not correlate with income is becoz.... our methodology to count income is wrong all this time.

    Remember, home price is :
    1. determined by auction bid
    2. You could have a zip code with 1000 household/house ; highest price PSF for that home lets say $1K/sqft ; $1,000,000 
     
    but 89% in that neighborhood works for USPS. So how come the price went from 100k to 1000k in 35 years.
    Simple because 11% of the supply keeps changing hand in auction style where the bid going higher and higher. The less number of house to be sold, the faster the velocity of the price.

    And those who purchased those homes in 1986 for $75k, does not need to sell and they can not sell too. Hence price going up without significant relevancy to the income level.

    That's the chokehold on this. And why it's a scarcity game.

    I get the flat appreciation view; I think that's right for the next 1-4 years but past that it's going to be a scarcity game.

     That's why if all mortgage is converted to 3YARM from 30YFRM, real estate price may go down by now lol ... someone has 5 million assets right now and paid $2500 monthly mortgage LOL , it's quite possible

  • Robert EllisBusiness Member
    Developer · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
    2y
    Quote from @Carlos Ptriawan:
    Quote from @K S.:
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @Andrew Lax:

    Many on here are assuming RE will continue to appreciate at these inflated rates  ...   Unless salaries catch up and expenses get under control (RET/Insurance) I dont see that happening ... 

    I think a lot of you are younger and dont remember long periods of little to no appreciation.  I feel we are about to enter into that phase.... 

    That said, there will always be deals and hope you guys find them - I am about to exit from the RE game :-) 


     I used to think like this.
    And I used to think the market would react the same.

    It's not. You may see the market that keeps going up income and salary has no relevance to the pricing , and you would see a market where everything depends on local income.

    Usually, when we face surprise that price does not correlate with income is becoz.... our methodology to count income is wrong all this time.

    Remember, home price is :
    1. determined by auction bid
    2. You could have a zip code with 1000 household/house ; highest price PSF for that home lets say $1K/sqft ; $1,000,000 
     
    but 89% in that neighborhood works for USPS. So how come the price went from 100k to 1000k in 35 years.
    Simple because 11% of the supply keeps changing hand in auction style where the bid going higher and higher. The less number of house to be sold, the faster the velocity of the price.

    And those who purchased those homes in 1986 for $75k, does not need to sell and they can not sell too. Hence price going up without significant relevancy to the income level.

    That's the chokehold on this. And why it's a scarcity game.

    I get the flat appreciation view; I think that's right for the next 1-4 years but past that it's going to be a scarcity game.

    Is that because new home builds and laxed ADU laws can't keep up with 10s of millions of unchecked immigrants?At some point, you think there would be a boom in housing starts due to incentives for builders that will reverse scarcity. Plus due to the DTI, the middle class can't push prices up anymore and there's not enough rich people to keep bidding up the current supply rate indefinately. I'd imagine polititions making new regulations and incentives for housing starts putting a wrench in the next 10-15 years being as good or better than the last theory. But with completely open borders, I could be wrong.


    Don't forget income is actually can rise faster than the rent. And vice versa.

    Currently, the sample of the metro where income grows faster than rent are San Jose and  Dallas.
    Sample of a metro where rent growth is faster than income growth : Miami, FL. 

    If income grows faster than rent then the home appreciation can still accelarate rapidly especially when city inventory is reducing.

    ...Also the very basic component of home appreciation is money being circulated and not primarily the income in that area. If it's income only then the average price in San Jose shall be equal to Dallas but it's not. 


     miami florida also has 15%+ appreciation. imagine starting a 2 year development project and at the end you have two years of that appreciation. makes the deal easy even if you weren't that great at estimating. 

  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y
    Quote from @K S.:
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @Andrew Lax:

    Many on here are assuming RE will continue to appreciate at these inflated rates  ...   Unless salaries catch up and expenses get under control (RET/Insurance) I dont see that happening ... 

    I think a lot of you are younger and dont remember long periods of little to no appreciation.  I feel we are about to enter into that phase.... 

    That said, there will always be deals and hope you guys find them - I am about to exit from the RE game :-) 


     I used to think like this.
    And I used to think the market would react the same.

    It's not. You may see the market that keeps going up income and salary has no relevance to the pricing , and you would see a market where everything depends on local income.

    Usually, when we face surprise that price does not correlate with income is becoz.... our methodology to count income is wrong all this time.

    Remember, home price is :
    1. determined by auction bid
    2. You could have a zip code with 1000 household/house ; highest price PSF for that home lets say $1K/sqft ; $1,000,000 
     
    but 89% in that neighborhood works for USPS. So how come the price went from 100k to 1000k in 35 years.
    Simple because 11% of the supply keeps changing hand in auction style where the bid going higher and higher. The less number of house to be sold, the faster the velocity of the price.

    And those who purchased those homes in 1986 for $75k, does not need to sell and they can not sell too. Hence price going up without significant relevancy to the income level.

    That's the chokehold on this. And why it's a scarcity game.

    I get the flat appreciation view; I think that's right for the next 1-4 years but past that it's going to be a scarcity game.

    Is that because new home builds and laxed ADU laws can't keep up with 10s of millions of unchecked immigrants?At some point, you think there would be a boom in housing starts due to incentives for builders that will reverse scarcity. Plus due to the DTI, the middle class can't push prices up anymore and there's not enough rich people to keep bidding up the current supply rate indefinately. I'd imagine polititions making new regulations and incentives for housing starts putting a wrench in the next 10-15 years being as good or better than the last theory. But with completely open borders, I could be wrong.


     It's not necessarily open borders because policy can always change, it's just fundamental. How much land is there, and how much demand is there for certain plots? Then, how much desirable plots won't get the dose of natural disasters and which will?

    You can do whatever you want for builder incentives, it does not change the fact there's X amount of desirable, disaster-limited land. Nothing you can change about that. 

  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y
    Quote from @Carlos Ptriawan:
    Quote from @V.G Jason:
    Quote from @Carlos Ptriawan:
    Quote from @Andrew Lax:

    Many on here are assuming RE will continue to appreciate at these inflated rates  ...   Unless salaries catch up and expenses get under control (RET/Insurance) I dont see that happening ... 

    I think a lot of you are younger and dont remember long periods of little to no appreciation.  I feel we are about to enter into that phase.... 

    That said, there will always be deals and hope you guys find them - I am about to exit from the RE game :-) 


     I used to think like this.
    And I used to think the market would react the same.

    It's not. You may see the market that keeps going up income and salary has no relevance to the pricing , and you would see a market where everything depends on local income.

    Usually, when we face surprise that price does not correlate with income is becoz.... our methodology to count income is wrong all this time.

    Remember, home price is :
    1. determined by auction bid
    2. You could have a zip code with 1000 household/house ; highest price PSF for that home lets say $1K/sqft ; $1,000,000 
     
    but 89% in that neighborhood works for USPS. So how come the price went from 100k to 1000k in 35 years.
    Simple because 11% of the supply keeps changing hand in auction style where the bid going higher and higher. The less number of house to be sold, the faster the velocity of the price.

    And those who purchased those homes in 1986 for $75k, does not need to sell and they can not sell too. Hence price going up without significant relevancy to the income level.

    That's the chokehold on this. And why it's a scarcity game.

    I get the flat appreciation view; I think that's right for the next 1-4 years but past that it's going to be a scarcity game.

     That's why if all mortgage is converted to 3YARM from 30YFRM, real estate price may go down by now lol ... someone has 5 million assets right now and paid $2500 monthly mortgage LOL , it's quite possible


    That'd be akin to folks creating the bubble in 05-06 with it popping in 08-09. Cliff like fall; that's not the case here.  You'll have an affordability crisis that'll revert when wages>rents making RTP tighten. Not by huge house crashes, let wages go up 3-5% in 2024-2026 when rents stay flat, slight decline in 2024-2026. That'll alleviate a lot of pressure. It's literally happening as we speak. 

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